Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill

Bill No. 14/1987

Read the first time on 28th July 1987.

An Act to amend the Economic Expansion Incentives (Relief from Income Tax) Act (Chapter 86 of the 1985 Revised Edition).

Be it enacted by the President with the advice and consent of the Parliament of Singapore, as follows:

Short title and commencement

1.—(1) This Act may be cited as the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Act 1987.

(2) Sections 10 and 11 shall be deemed to have come into operation on 1st January 1986.

(3) Sections 4 and 12 shall be deemed to have come into operation on 1st April 1986.

(4) Section 6 shall be deemed to have come into operation on 1st April 1987.

Amendment of section 8

2. Section 8 of the Economic Expansion Incentives (Relief from Income Tax) Act (referred to in this Act as the principal Act) is amended —

(a)	by inserting, immediately after the word “period” at the end of subsection (3), the words “unless the Comptroller, having regard to all the circumstances of the case, is satisfied that the loss was not incurred for the purpose of obtaining a tax advantage”; and
(b)	by inserting, immediately after the words “deemed to be 5%” in subsection (4), the words “(or such lower rate as the Minister may specify in any particular case)”.

Amendment of section 15

3. Section 15 of the principal Act is amended —

(a)

by deleting subsection (1) and substituting the following subsection:

“(1) Where a pioneer enterprise has, during its tax relief period, incurred a loss for any year, that loss shall be deducted as provided for in section 37(2) of the Income Tax Act (Cap. 134) but only against the income of the pioneer enterprise as ascertained under section 10, except that the balance of any such loss which remains unabsorbed at the end of its tax relief period is available to the new trade or business in accordance with that Act.”; and

(b)

by inserting, immediately after the word “business” at the end of subsection (2), the words “in accordance with the Income Tax Act”.

New Part IIIA

4. The principal Act is amended by inserting, immediately after Part III, the following Part:

“PART IIIA

POST-PIONEER COMPANIES

Interpretation of this Part

19A. For the purposes of this Part, unless the context otherwise requires —

“commencement day”, in relation to a post-pioneer company, means the date specified under section 19B(3) in the certificate issued to that company under that section;

“post-pioneer company” means a company which has been issued with a certificate under section 19B(2);

“qualifying activity”, in relation to a post-pioneer company, means its trade or business in respect of which tax relief had been granted under Part II, III or VI and any other trade or business approved by the Minister.

Application for and issue of certificate to post-pioneer company

19B.—(1) Any company —

(a)	which is a pioneer enterprise or a pioneer service company on or after 1st April 1986;
(b)	which is an export enterprise on or after 1st April 1986 and which had been a pioneer enterprise immediately before its tax relief period as an export enterprise,

may apply in the prescribed form to the Minister for approval as a post-pioneer company.

(2) The Minister may, if he considers it expedient in the public interest to do so, approve the application and issue the company with a certificate subject to such terms and conditions as he may impose.

(3) Every certificate issued to a post-pioneer company under this section shall specify —

(a)	a date as the commencement day from which the company shall be entitled to tax relief under this Part;
(b)	its qualifying activities; and
(c)	the concessionary rate of tax to be levied for the purposes of this Part.

(4) The Minister may, in his discretion, upon an application of a post-pioneer company, amend its certificate by substituting for the commencement day specified therein such other date as he thinks fit and thereupon the provisions of this Part shall have effect as if that date were the commencement day in relation to that certificate.

(5) Notwithstanding section 43 of the Income Tax Act (Cap. 134), tax at such concessionary rate, not being less than 10% as the Minister may specify, shall be levied and paid for each year of assessment upon the income derived by a post-pioneer company during its tax relief period from its qualifying activities.

Tax relief period of post-pioneer company

19C. The tax relief period of a post-pioneer company shall commence on its commencement day and shall continue for a period not exceeding 5 years as the Minister may determine.

Ascertainment of income in respect of other trade or business

19D.—(1) Where during its tax relief period a post-pioneer company carries on any trade or business other than its qualifying activities, separate accounts shall be maintained in respect of that other trade or business and in respect of the same accounting period, and the income from that other trade or business shall be computed and assessed in accordance with the Income Tax Act with such adjustments as the Comptroller thinks reasonable and proper.

(2) Where in the opinion of the Comptroller the carrying on of such other trade or business is subordinate or incidental to the carrying on of the qualifying activities of the post-pioneer company, the income or loss arising from such other trade or business shall be deemed to form part of the income or loss of the post-pioneer company in respect of its qualifying activities.

Deduction of losses

19E. The Minister may, in relation to post-pioneer companies, by regulations provide for —

(a)	the manner in which expenses, capital allowances and donations allowable under the Income Tax Act are to be deducted; and
(b)	the deduction of capital allowances and of losses otherwise than in accordance with sections 23 and 37(2) of the Income Tax Act (Cap. 134).

Certain dividends exempted from income tax

19F.—(1) As soon as any amount of income of a post-pioneer company has been subject to tax at the concessionary rate under section 19B, the net amount of the income after deduction of the tax shall be credited to a special account (referred to in this section as the account) to be kept by the post-pioneer company for the purposes of this section.

(2) Where the account is in credit at the date on which any dividends are paid by the post-pioneer company out of the net amount of the income credited to that account, an amount equal to those dividends or to that credit, whichever is the less, shall be debited to the account.

(3) So much of the amount of any dividends so debited to the account as is received by a shareholder of the post-pioneer company shall, if the Comptroller is satisfied with the entries in the account, be exempt from tax in the hands of the shareholder:

Provided that where the dividend is paid on any share of a preferential nature, it shall not be so exempt in the hands of the shareholder.

(4) Section 44 of the Income Tax Act shall not apply in respect of any dividends or part thereof which are debited to the account.

(5) Where an amount of dividends debited to the account has been received by a shareholder, and that shareholder is a company (referred to in this section as the holding company) which holds, throughout its tax relief period, the beneficial interest in all the issued shares of the post-pioneer company (or in not less than such proportion of those shares as the Minister may require at the time when the post-pioneer certificate is issued to the post-pioneer company) any dividends paid by the holding company to its shareholders, to the extent that the Comptroller is satisfied that those dividends are paid out of such amount, shall be exempt from tax in the hands of those shareholders; and section 44 of the Income Tax Act (Cap. 134) shall not apply to any such dividends or part thereof so exempt:

Provided that the holding company may, with the approval of the Minister and subject to such conditions as he may impose, pay such exempt dividends to its shareholders even if it has not held the requisite shareholding in the post-pioneer company for the whole of the tax relief period.

(6) A company shall deliver to the Comptroller a copy of the account made up to any date specified by him whenever called upon to do so by notice in writing.

(7) Notwithstanding subsections (1) to (6), where it appears to the Comptroller that —

(a)	any income of a post-pioneer company which has been subject to tax at the concessionary rate under section 19B; or
(b)	any dividend, including a dividend paid by a holding company under subsection (5), which has been exempted from tax in the hands of any shareholder,

ought not to have been so taxed or exempted for any year of assessment, the Comptroller may within 12 years after the end of that year of assessment —

(i)	make such assessment or additional assessment upon the company or any such shareholder as may be necessary in order to make good any loss of tax; or
(ii)	direct the company to debit the account with such amount as the circumstances require.”.

Amendment of section 32

5. Section 32(3) of the principal Act is amended by inserting, immediately after the word “so”, the words “and subject to such terms and conditions as he may impose”.

New Part VIA

6. The principal Act is amended by inserting, immediately after Part VI, the following Part:

“PART VIA

EXPORT OF SERVICES

Interpretation of this Part

44A. For the purposes of this Part, unless the context otherwise requires —

“commencement day”, in relation to an export service company or export service firm, means the date specified under section 44B(3) in the certificate issued to that company or firm under that section;

“export service company” means a company which has been issued with a certificate under section 44B(2);

“export service firm” means a firm which has been issued with a certificate under section 44B(2);

“qualifying services” means any of the following services undertaken with respect to overseas projects for persons who are neither residents of nor permanent establishments in Singapore:

(a)	technical services including construction, distribution, design and engineering services;
(b)	consultancy, management, supervisory or advisory services relating to any technical matter or to any trade or business;
(c)	fabrication of machinery and equipment and procurement of materials, components and equipment;
(d)	data processing, programming, computer software development, telecommunications and other computer services;
(e)	professional services including accounting, legal, medical and architectural services;
(f)	educational and training services;
(g)	any other services as may be prescribed.

Application for and issue of certificate to export service company or export service firm

44B.—(1) Where a company or firm is engaged in any qualifying service, the company or firm may apply in the prescribed form to the Minister for approval as an export service company or export service firm.

(2) The Minister may, if he considers it expedient in the public interest to do so, approve the application and issue the company or firm with a certificate subject to such terms and conditions as he may impose.

(3) Every certificate issued to an export service company or firm under this section shall specify —

(a)	a date as the commencement day from which the company or firm shall be entitled to tax relief under this Part;
(b)	its qualifying services; and
(c)	its base amount of income for the purpose of section 44E(2).

(4) The Minister may, in his discretion, upon the application of an export service company or firm, amend its certificate by substituting for the commencement day specified therein such earlier or later date as he thinks fit and thereupon the provisions of this Part shall have effect as if the date so substituted were the commencement day in relation to that certificate.

Tax relief period of export service company or firm

44C.—(1) The tax relief period of an export service company or firm shall commence on its commencement day and shall continue for a period of 5 years.

(2) The Minister may, where he is satisfied that it is expedient in the public interest to do so and subject to such terms and conditions as he may impose, extend the tax relief period of any export service company or firm for such further periods, not exceeding 5 years at any one time, as he thinks fit.

Application of certain sections of this Act to export service company or firm

44D.—(1) Section 9 shall apply, with necessary modifications, to an export service company or firm as it applies to a pioneer enterprise.

(2) Section 40 shall apply, with necessary modifications, to an export service company as it applies to an export enterprise.

(3) Sections 49 and 50 shall apply, with necessary modifications, to an export service company or firm as they apply to an international trading company and for the purposes of such application, the reference in section 49(2) to the export sales of qualifying manufactured goods, Singapore domestic produce and qualifying commodities shall be read as a reference to the provision of qualifying services.

Ascertainment of income of export service company or firm

44E.—(1) The income of an export service company or firm in respect of its qualifying services shall be ascertained (after making such adjustments as may be necessary in consequence of a direction under section 9 as made applicable by section 44D) for any accounting period during its tax relief period in accordance with the Income Tax Act (Cap. 134), and in particular the following provisions shall apply:

(a)

income from sources other than the qualifying services shall be excluded and separately assessed;

(b)

there shall be deducted in arriving at the income derived from the qualifying services:

(i)	all direct costs and expenses incurred in respect of the qualifying services;
(ii)	all indirect expenses which are reasonably and properly attributable to the qualifying services;

(c)

the allowances provided for in sections 16 to 22 of the Income Tax Act (Cap. 134) attributable to income derived from the qualifying services during the tax relief period shall be taken into account notwithstanding that no claim for those allowances has been made; and

(d)

for the purposes of paragraphs (b)(ii) and (c), the amounts attributable to the qualifying services shall be determined on such basis as the Comptroller thinks reasonable and proper.

(2) The amount of income ascertained under subsection (1) which will qualify for the relief under section 44F shall be the excess of the amount of the income ascertained under subsection (1) over a base amount of income to be determined by the Minister.

Comptroller to issue statement of income

44F.—(1) For each year of assessment, the Comptroller shall issue to an export service company or firm a statement for that year of assessment showing the amount of income ascertained under section 44E(2) which will qualify for the relief provided by this section, and Parts XI and XII of the Income Tax Act (relating to objections and appeals) and any regulations made thereunder shall apply, with necessary modifications, as if that statement were a notice of assessment given under those provisions.

(2) Subject to section 40(6), where any statement issued under subsection (1) has become final and conclusive, 90% of the amount of the qualifying income referred to in subsection (1) shall not form part of the statutory income of the export service company or firm for the year of assessment to which the income relates and shall be exempt from tax.

Certification by auditor

44G. The Comptroller may require an auditor to certify the income derived by an export service company or firm from its qualifying services and any direct costs and expenses incurred therefor.

Application of this Part to partnership

44H. Where the export service firm is a partnership, this Part shall apply to the partners subject to such provisions as may be prescribed.

Deduction of allowances and losses

44I. The Minister may by regulations provide, in relation to an export service company or firm, for the deduction of —

(a)	any unabsorbed allowances provided for under sections 16 to 22 of the Income Tax Act (Cap. 134) attributable to income derived from qualifying services by it during its tax relief period otherwise than in accordance with section 23 of that Act; and
(b)	losses incurred by it during its tax relief period otherwise than in accordance with section 37(2) of the Income Tax Act.”.

Repeal and re-enactment of section 64

7. Section 64 of the principal Act is repealed and the following section substituted therefor:

“Reduction of, or exemption from, tax

64. Notwithstanding section 43(b) of the Income Tax Act (Cap. 134), the Minister may, if he is satisfied that it is expedient in the public interest to do so, by an endorsement to that effect on the approved royalties, fees or contributions certificate exempt from tax wholly or in part any approved royalties, fees or contributions received by a non-resident person.”.

Amendment of section 65

8. Section 65 of the principal Act is amended by deleting the words “the reduced rate of 20%” and substituting the words “a reduced rate”.

Amendment of section 66

9. Section 66(1) of the principal Act is amended by deleting the words “section 67(1)(b), (c) or (d), include a building used for carrying out that project” in the definition of “fixed capital expenditure” and substituting the words “section 67(1)(b), (c), (d), (f) or (g), include a building or structure specially designed and used for carrying out that project”.

Amendment of section 67

10. Section 67(1) of the principal Act is amended by deleting the comma at the end of paragraph (f) and substituting a semi-colon, and by inserting immediately thereafter the following paragraph:

“(g)	for the promotion of the tourist industry (other than a hotel) in Singapore,”.

Amendment of section 68

11. Section 68(1) of the principal Act is amended by deleting paragraph (b) of the proviso and substituting the following paragraph:

“(b)	in the case of a project under section 67(1)(g), within such period (hereinafter referred to as the qualifying period), not exceeding 10 years, commencing from the investment day as the Minister may determine.”.

New Part XIIIA

12. The principal Act is amended by inserting, immediately after Part XIII, the following Part:

“PART XIIIA

VENTURE CAPITAL INCENTIVE

Interpretation of this Part

97A. For the purposes of this Part, unless the context otherwise requires —

“eligible holding company”, in relation to a venture company or a technology investment company, means a company incorporated in Singapore —

(a)	which is resident in Singapore;
(b)	which holds shares in the venture company or the technology investment company; and
(c)	in respect of which not less than 50% of the paid-up capital is beneficially owned by citizens or permanent residents of Singapore throughout the period during which it holds shares in the venture company or the technology investment company, unless the Minister otherwise decides;

“eligible individual”, in relation to a venture company, means an individual resident in Singapore who is a citizen or permanent resident of Singapore;

“technology investment company” means a company approved as a technology investment company under section 97C(2);

“venture company” means a company approved as a venture company under section 97B(2).

Application for and issue of certificate to venture company

97B.—(1) Any company incorporated in Singapore which is desirous of developing or using in Singapore a new technology in relation to a product, process or service may make an application in the prescribed form to the Minister to be approved as a venture company.

(2) Where the Minister is satisfied that the technology, if introduced in Singapore, would promote or enhance the economic or technological development of Singapore, he may approve the company as a venture company and issue a certificate to the company subject to such conditions as he may impose.

Application for and issue of certificate to technology investment company

97C.—(1) Any company, incorporated and resident in Singapore, desirous of investing in an overseas company which is developing or using a new technology in relation to a product, process or service may make an application in the prescribed form to the Minister to be approved as a technology investment company.

(2) Where the Minister is satisfied that the technology, if introduced in Singapore, would promote or enhance the economic or technological development of Singapore, he may approve the company as a technology investment company and issue a certificate to the company subject to such conditions as he may impose.

Deduction of losses allowable to eligible holding company or eligible individual

97D.—(1) Where any eligible holding company or eligible individual has incurred any loss arising from —

(a)	the sale of shares held by it or him in a venture company; or
(b)	the liquidation of a venture company,

the loss shall be allowed as a deduction against the statutory income of the company or individual in accordance with section 37(2) of the Income Tax Act (Cap. 134) as if the loss were incurred from a trade or business carried on by it or him.

(2) Where any eligible holding company has incurred any loss arising from —

(a)	the sale of shares held by it in a technology investment company; or
(b)	the liquidation of a technology investment company,

the loss shall be allowed as a deduction against its statutory income in accordance with section 37(2) of the Income Tax Act as if the loss were incurred from a trade or business carried on by it.

(3) Notwithstanding subsections (1) and (2), no deduction shall be allowed in respect of any loss referred to in those subsections if —

(a)

the shares in respect of which the loss was incurred were held by an eligible holding company or eligible individual in a venture company, or by an eligible holding company in a technology investment company, for a period of less than two years from the date of issue of the shares, unless the loss was incurred as a result of the liquidation of the venture company or technology investment company; or

(b)

the sale of shares or liquidation occurred after 8 years from the date of approval under this Part of the venture company or technology investment company.

(4) The deduction under subsections (1) and (2) shall be available only to a person to whom shares are allotted by a venture company or technology investment company on or after 1st April 1986, and shall not be available to any transferee of such shares.

(5) For the purposes of subsections (1) and (2), the loss shall be the excess of the purchase price of the shares —

(a)	over the proceeds from the sale; and where the open market value at the date of the sale (or the value of net asset backing as determined by the Comptroller in the case of a company not quoted on any stock exchange) of the shares is greater than the sale proceeds, that value shall be deemed to be the proceeds from the sale; or
(b)	over the proceeds from the liquidation, as the case may be.

Prohibition of other trade or business

97E.—(1) A venture company shall not, without the written approval of the Minister, carry on any trade or business other than the trade or business to which its certificate relates.

(2) A technology investment company shall not carry on any trade or business.

Recovery of tax

97F. Notwithstanding anything in this Part, where it appears to the Comptroller that any deduction under section 97D ought not to have been given to an eligible holding company or eligible individual by reason of the revocation under section 99 of a certificate issued to a venture company or a technology investment company, the Comptroller may, at any time within 12 years from the date of the revocation, make such assessment or additional assessment upon the eligible holding company (or any of its shareholders) or any eligible individual as may be necessary in order to recover any tax which should have been payable by the eligible holding company (or any of its shareholders) or the eligible individual.”.

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